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Strategies & Market Trends : Waiting for the big Kahuna
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To: tekgk who wrote (6937)10/23/1997 11:50:00 AM
From: IQBAL LATIF  Read Replies (1) of 94695
 
Debt is a function of nation's ability to service the debt, will you now kindly go back and check if interest coverage ratio from fed revs is increasing or decreasing- you will be pleasantly surprised that in relation to fed rev this interest coverage has been improving.
The crisis in ASEAN nations are overextension of private sector to borrow in $'s and spend in ringgit or rupiah- this is a good thing as far as hot money keeps coming but once hot money dries up you have a seiousl problem at hand.
US corporation does not a problem of functional currency and reporting currency- their receipts and revs are in same currency i.e. $, but imagine yourselve a CEO of a HK multinational you have a 10 billion $ loan but receipts in Yuan, now speculators and investors are selling local currency short and buying $'s, the government to save the currency is jacking up interest rates to 30%- however the original problem remains private sector and public sector lavish borrowing has put currencies in pressure as flow of money reverses- you end up in this crisis. US as safe haven country does not have this problem.

Like MEXICO this is a crisis of confidence and vain honor of maintaining currency parity at much higher levels then where actually it should be- markets takes their own sweet revenge and you will see that without a IMF led bailout ASEAN will not escape from pitfalls of overspending. Lower currencies may lead to importing price stabilty moreover it may also slow the economic expansion everyone is so concerned.
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